October retail sales rise a slight 0.1% ahead of the holidays

Humdrum retail sales in October, which followed a summer of lackluster spending, could spell trouble ahead for the crucial holiday season — already underway across America.

Last month, retail sales rose 0.1%, the Commerce Department said Friday. Economists had predicted a more robust 0.3% growth, according to FactSet, a financial data company.

There was more bad news: Retail sales for September, which had previously been reported as up 0.1%, were revised to unchanged.

“The pace of retail spending has been slowing … since the middle of 2014,” said Steve Blitz, chief economist of research firm ITG. “The reason why is fairly simple — the pace of job growth has slowed and this means growth in total consumer income has slowed as well.”

Consumers are already sounding cautious. For the holiday season, many shoppers are like Lavon Gaylord, 45, who said she plans to keep a sharp eye out for promotions and discounts.

The Manhattan Beach facilities manager said she has three daughters to shop for, and she wants to get them a handful of thoughtful presents instead of a pile of gifts they might not use. “I do a lot of coupons,” Gaylord said. “I look out for sales.”

If consumers hold on to their cash in the coming months, that could be a big problem for retailers, who can make up to 40% of their total annual sales during the holiday-laden last few months of the year.

Macy’s is already singing the blues. On Wednesday, the department store chain, which also includes Bloomingdale’s, said it would have to heavily discount merchandise after a slow fall left it with piles of unsold products.

The company, which is heavily linked in many people’s minds to Christmas shopping, said sales fell 5.2% in its third quarter.

“We believe the retail industry is going through a tough period,” Terry Lundgren, Macy’s chief executive, said in a conference call.

That was echoed by Nordstrom Inc., which also reported weak earnings this week. The upscale chain said the sales slowdown was likely to continue into the last few months of the year.

SIGN UP for the free California Inc. business newsletter >>

Although the scant growth was a surprise, many economists expect shoppers to still open their wallets and give retailers a solid — but not blockbuster — holiday season.

The National Retail Federation, a trade group, forecasts that sales during November and December will climb 3.7% to $630 billion, slightly below the 4.1% growth of last year.

“The overall outlook is of a consumer economy that is moving ahead at a walking pace rather than striding along,” said Neil Saunders, chief executive of retail research agency Conlumino. “Consumers remain caught in a netherworld of being less gloomy than they were in the depths of the downturn, but far less optimistic than they were in the period before it.”

A healthy job market and wage growth could give consumers more confidence.

Last week, the Bureau of Labor Statistics reported that hiring surged in October. Average hourly earnings also rose 9 cents from the previous month, a year-over-year gain of 2.5% that is the highest since July 2009.

The strong report, analysts said, may persuade the Federal Reserve next month to implement its first interest rate hike in nearly a decade, even if retail sales aren’t robust.

In the upcoming holiday season, retailers are expected to again depend on discounts to draw shoppers in, a pattern that developed in the years after the Great Recession and has yet to be broken.

But some consumers are feeling more cheerful and prepared to splurge a little for the holidays.

At the FIGat7th mall in downtown Los Angeles, Aisha Moody, 24, was optimistic, saying she planned to spend as much as $1,000 on gifts for her family and herself.

The dental assistant said her office has been busier this year, with more clients coming in for services they may have put off in the past.

“Things seem generally better this year,” the downtown L.A. resident said. “I’ve been shopping for fall — sweaters, shoes and accessories.”

October’s overall figure looked slightly better after stripping out the volatile motor vehicle and parts sector, which dropped 0.5%. Without that sector, retail sales climbed 0.2%.

Six of 13 sectors reported by the Commerce Department showed declines in sales or were unchanged.

Electronics and appliance stores reported a 0.4% drop, while general merchandise stores also fell by 0.4%. But there was positive news for consumers at gas stations. Lower prices at the pump pushed gas station sales down 0.9%, which put more cash into consumers’ pockets.

Follow Shan Li on Twitter @ByShanLi

ALSO

Young women are living with Mom and Dad as if it’s 1940

California’s economy is booming, so why is it No. 1 in poverty?

Haggen bankruptcy is a buying opportunity for Smart & Final, other grocers